Question

In: Accounting

QUESTION 22 Presented below is information related to Sheridan Manufacturing Company as of December 31, 2021:...

QUESTION 22

Presented below is information related to Sheridan Manufacturing Company as of December 31, 2021:

Projected Benefit Obligation 1,950,000

Accumulated OCI (PSC) 860,000

Fair value of the pension plan assets 1,445,000

The pension asset/liability reported on the balance sheet at Decermber 31, 2021 is

O Pension liability of $505,000.

O Pension liability of $1,950,000.

O Pension liability of S2,810,000.

O Pension liability of $1,445,000.

Solutions

Expert Solution

The correct answer for the question is Option A - Pension liability of $505,000. This Pension liability is calculated as follows:-

Pension Liability = Projected Benefit Obligation - Fair value of the pension plan assets.

Pension Liability = $1,950,000 - $1,445,000

Pension Liability = $505,000

Based on the above calculation, the correct answer is Option A - $505,000. This amount is the underfunded projected benefit obligation. Generally, this is the amount that is shown on the Balance Sheet as a Pension Liability. This is the correct answer.

Option B is incorrect as $1,950,000 is the amount that does not consider the fair value of the pension plan assets available.

Option C is incorrect as $2,810,000 is not the correct answer per above considerations.

Option D is incorrect as $1,445,000 is the value of the pension assets.

Please let me know if you have any questions via comments and all the best :) !


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